Handbook of income-tax law and practice, with an index to the acts of Parliament, 1842 to the present time

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Preface

Twenty years have elapsed since the passing of the Income Tax Act, and no compendious publication has yet appeared, professing to convey that description of information which is usually embodied under the now popular form of a Hand-Book. This is the more surprising, because on account of the numerous difficulties connected with the Law and Practice on the subject, and the many important provisions in the various Acts of Parliament affecting the interests of all classes of the community * information cannot be too widely circulated.

*The following letter, from John Gellibrand Hubbard, Esq., m.p., will serve to show how important, and at the same time how little known, are some of the operations of the Income Tax Acts! —

The Income Tax.

to the editor of the timer.

Sir, — Many traders and manufacturers have, 1 doubt not, reason to lament the unprofitable result of their business in the year 1861 ; but I believe that comparatively few are aware of the provision in the Income Tax Act which enables them to recover the tax that was overpaid for the year 1861, before the results of the year were ascertained. I have recently had occasion to become familiar with the mode of recovery, and you will, I am sure, confer a benefit upon the mercantile community by allowing me, through your columns, to indicate the necessary course of proceeding,

A trader may have returned, say £12,000, as the average of his profits for the years 1858, 1859, and 1860, and upon this sum he will have paid 97. in the pound, or £450, in the course of the financial year 1861-2 ; hut, on closing his books, he finds tnit he has made only £4,000, or possibly he has made a loss. In either event he will address

a2

Tl PREFACE.

The Author of this volume has long entertained the design of endeavouring to supply what he believes to be a desideratum. •

to the Commissioners,* by whom he had been assessed, a letter in the following f orm : —

" Gentlemen, — I annex a copy of the debtor and creditor account of my profit and loss under Schedule D for the year 1861, from which you will perceive that my business for the year ending on the last resulted in a profit of only £4,000 (or in a loss). 1 will thank you, therefore, to repay me the tax on £8,000 (or on £12,000), being the abatement to which I am entitled by the 133rd clause of the Act 5th and 6th Victoria, cap. 35.

" I remain, Gentlemen, your obedient servant,

•

As the trader is bound to substantiate his claim " to the satisfaction of the Commissioners," the account of profit and loss which he renders must be "very full and explicit, showing every deduction from the gross amount of profits;'1 and if the mode in which he keeps his accounts does not supply all the information which the Commissioners require for their satisfaction, they will probably ask for his attendance, or that of his book-keeper, to supply any omission.

Many traders constantly violate the law without knowing it, and return for their assessment their profits as they appear after deduction of " interest paid on borrowed capital," and of " interest charged on their own capital. " Neither of these deductions is lawful. The interest of a trader's capital is combined with his profits, and, if previously charged against profits, must be reunited to them for the purpose of taxation. Interest paid on borrowed capital must be also added by the trader to the profits he returns for assessment, and he recovers the tax which he then pays to the Exchequer by charging it to his creditor. It is essential to the accuracy of returns of trade profits, either for assessment or for recovery of tax, that interest of capital should be carefully treated.

The Commissioners, when satisfied of the correctness of the claim, will certify the same to the Special Commissioners, who will thereupon issue an order for the repayment of such sum as snail have been overpaid.

I have been astonished to find how little known among commercial men is this 183rd clause,! which is to them so important, since its practical effect may be to reduce the tax on fluctuating profits by a quarter, a third, or even a half of what, on an average of yean, they would otherwise have to pay.

I remain, Sir, your obedient servant,

J. G. Hubbabd.

19, Birchin-lane, Aug. 15, 1862.

* The more usual oourse is to forward some notice or eommvaloattoa to die Surveyor of Tsxm for the District t Vide chapter IS, page 241.

PREFACE. Vll

It has been his aim to give only such information as might be generally interesting and useful, and, so far as possible, to present it in a connected form.

The illustrative cases which are scattered throughout the work will, it is hoped, be found to touch in a practical manner upon most of the points likely to give rise to difficulty or doubt.

The very valuable and interesting Reports drawn up by several Members of the Committee of the House of Commons, which sat in the Session of 1861, have been added, and also an Index to the various Acts passed during the last twenty years.

With the aid of this Index direct reference can be made to the Acts themselves upon any points which may not be referred to in the following pages.

It is confidently hoped that the Hand-Book may be found to supply much information which has frequently been sought for elsewhere in vain ; and afford the means of acquiring such a knowledge of Income Tax Law and Practice as will prove to be sufficient for all classes of the community affected by its operation.

6,1863.

Contents

Page

Sketch of the Income Tax from 1798 to 1816, ... ... 1

1 — The Income Tax as introduced by the late Right Hon. Sir Robert Peel, Bart, in 1842 — subsequent legislation — Parliamentary Committees of Inquiry in 1851 and 1861, ... 10 2 — Schedules of the Act, ... ... ... ... 20

Chapter II. The Schedules Of The Act Described

Fon the purpose of classifying and distinguishing the several properties, profits, and gains, chargeable under the Income Tax Act, they are comprised and described in five Schedules, viz., A, B, C, D, and E.

Schedule A.

Under Schedule A is included property in lands,

houses, &c, &c.j &c., described as below: —

Alum Mines. Fines.

Alum Works. Fisheries.

Bridges (Tolls of). Fairs (Rights of).

Chalk Quarries. Forests.

Canals. Gas Works.

Coal Mines Hereditaments.

Copper Mines. Heritages.

Docks. Iron Works.

Brains. Ironstone Quarries.

Dues. Inland Navigations.

Easter Offerings. Levels.

Ferries. Lead Mines.

IKCOME TAX LAW AND FBACTICE.

Lands.

Limestone Quarries.

Manors.

Market- Gardens, Markets (Rights of).

Mondic Mines.

Mortgages on Houses.

Lands.

it

M

Nurseries.

Parka.

Pew Bents.

Railways.

Chapels.

Turnpike

Tolls.

Rent-charge in lieu of Tithes.

Royalties.

Stone Quarries.

Slate Quarries.

Salt Sprines or Works.

Streams of Water.

Surplice Fees.

Tenements.

Tithes.

Tolls.

Tin Mines.

Turnpikes (Tells of).

Waterworks.

Warrens.

Woodlands.

Schedule B.

Under this Schedule is assessed what is popularly known as " occupation duty upon land." If land is formed by the owner, he is liable to pay this duty, in respect of the profits, in addition to that charged under Schedule A, in respect of ownership. When land is occupied by a tenant, the duty is assessable upon him, on account of the profits derived from the cultivation. Profits arising from hop grounds, market-gardens, and nurseries, are also included under this Schedule. As regards the profits on market gardens and nurseries, however, the profits are to be estimated according to the rules contained in Schedule D, and the duty is to be charged at the same rate as the other profits assessable under that Schedule.

Schedule C.

This Schedule comprises all profits arising from interest, annuities, dividends, shares of annuities, payable to any person, body politic or corporate, company or society, out of any public revenue.

22 INCOME TAX LAW AND PBACTICK.

Payments of this nature, made out of the revenue of a foreign state, intrusted to any person in the United Kingdom for payment, are also assessed under this Schedule, as well as those out of the revenue of any colony or settlement belonging to the Crown.

Schedule D.

The various profits and gains coming under Schedule D are divisible as follows, viz. : — buying and selling shares in railways, gas works, water works, &c, in the United Kingdom or elsewhere ; dividends in the public funds, the half-yearly amount of which is less than fifty shillings ; employments or vocations not coming under the head either of professions or trades; foreign securities (except where the duty will be charged on the agents in this country intrusted with the payment of the dividends, and which duty will be deducted by such agent on payment of the dividends ; foreign possessions ; interest of money, the duty on which is not deducted by the party paying such interest ; annuities or other annual payments arising from railways out of the United Kingdom, except where the duty will be charged on the agent in this country intrusted with the payment of such interest and dividends, and which duty will be deducted by such agent on payment of the interest or dividends ; annuities or other annual payments derived from property out of the United Kingdom, except railways; letting furnished houses or furnished apartments ; possessions in the British plantations, or other of her Majesty's dominions, out of the United Kingdom; professions of every description;

I9COMS TAX LAW AND FBACTICX. 33

securities in the British plantations, or other of her Majesty's dominions, out of the United Kingdom ; trades of every denomination; also, property or profits not coming within any of the foregoing heads (except lands, 4c, or other property, of which no return is required to be made).

Schedule E.

Under this Schedule are charged all offices or employments of profit of a public nature, not exercised or held under any department for which Commissioners are specially appointed. It includes the following offices and appointments, viz. : —

Assessors of Taxes. Keapersof Houses of Correction.

Clerks to Commissioners of Keepers of Workhouses.

Taxes. Parochial Offices, of every de- Clerks of the Peace. scription- Clerks to Deputy Lieutenants. Receivers of Public Trusts and Collectors of Taxes. Charities.

Constables. Stewards of Public Trusts and Coroners. Charities- Deputy Sheriffs- Toll-gate Keepers. Gaolers.

It also includes all other offices or employments of profit of a public nature not above enumerated, held under the following or any other public departments or bodies, unless charged by commissioners specially appointed in the departmefti for the purpose of assessing the same, or by the principal officers or members of any corporate city, borough, town, or place, viz. :— . all offices held under or belonging to —

Commissioners of Taxes. County Palatine.

Civil Goventnent of Her EooJesawtical Body.

Majesty. Ecclesiastical Court.

Criminal Court Guardians of any Fund, Toll, Court of Justice. or D uties.

Lord Lieutenant of any County. Public Foundation. Magistrates of any County or Public Institution.

Borough. Sheriff of any County.

Public Corporation, Company, Turnpike, or any other Trusts, or Society.

There are two other schedules contained in the Act, viz., Schedule F, which relates to the oaths of secrecy to be taken by the various officers of the department intrusted with the management of Schedule D and

Schedule 6, which relates to the notices, returns, lists, declarations, &c., required by the Act.

Chapter III

THE COMMISSIONERS OF INLAND REVENUE — THE DISTRICT OK LOCAL COMMISSIONERS, VIZ., COMMISSIONERS FOR GENERAL

PURPOSES, AND ADDITIONAL COMMISSIONERS CLEEX! TO THE

COMMISSIONERS SPECIAL COMMISSIONERS.

By the third clause of the 5th and 6th Vic, c. 35, the Income Tax duties are placed under the direction and management of the Commissioners of Inland Revenue.

Under the 5th and 6th Vic, the Commissioners of Inland Revenue are " empowered to employ all such " officers or other persons, and to do all such other " acts and things as may be deemed necessary or " expedient for the raising, collecting, receiving, and " accounting for the duties, and for putting the Act " into execution, in the like and in as full and ample " a manner as they are authorized to do with relation " to any other duties under their care and manage- " ment"

The duties in England are to ube assessed, raised, " levied, and collected under the regulations of the " 43rd Geo. III., c. 99, entitled « An Act for con- " solidating certain of the Provisions contained in " any Act or Acts relating to the Duties under the " Management of the Commissioners for the Affairs 14 of Taxes, and for amending the same, and other " Acts relating thereto, or for explaining, altering, or " amending the same.1 "

The duties in Scotland are " to be raised under " the regulations of the 43rd Geo. III., c. 150, entitled 44 ' An Act for consolidating certain of the Provi- 44 sions contained in any Act or Acts relating to the " duties under the Management of the Commissioners " for the affairs of Taxes, and for amending the said " Act, so far as the same relate to that part of Great " Britain called Scotland, and other Acts relating 41 thereto, or for explaining, altering, or amending the 14 same.' w

On the extension of the Income Tax to Ireland in 1853, the powers of the Commissioners of Inland Revenue were enlarged by the 16th and 17th Vic, c. 34, so as to include the direction and management of the duties levied in that country. The Act directs that the duties in Ireland are to be collected and levied under the provisions of the 5th and 6th Vic, c. 35, the several Acts therein mentioned, and of any subsequent Act passed, explaining and amending the Act of 1842, so far as the same are consistent with the express provisions of the 16th and 17th Vic.,c. 34.

In placing the duties under the management of the Commissioners of Inland Revenue, it was also

o

26 ISCOUt TAX LAW AND PRACTICE.

enacted by Parliament, that all " the powers, antho- " rities, methods, roles, directions, penalties, clauses, 41 matters, and things now in force, contained in or 44 enacted by the several Acts before recited or re- " ferred to, or any other Acts relating to the duties of " Assessed Taxes, and also all the powers, authorities, " roles, regulations, directions, penalties, clauses, " matters, and things contained in or enacted by the 44 48th Geo. III., c. 141, entitled ' An Act to amend 44 the Acts relating to the Duties of Assessed Taxes, 44 and of the Tax opon the Profits of Property, Pro- " fessions, Trades, and Offices, and to regulate the " Assessment and Collection of the same,' as well as " the 50th Geo. III., c. 105, entitled 4 An Act to 44 regolate the manner of making Surcharges of the " Duties of Assessed Taxes, and of the Tax upon " Profits arising from Property, Professions, Trades, 44 and Offices ; and for amending the Acts relating to 44 the said Duties respectively,1 whether such last- " mentioned powers, authorities, rules, regulations, " directions, penalties, clauses, matters, and things " may be in force at the time of the passing of this 44 Act or not, and notwithstanding that the same or " any part thereof mdy have expired or been repealed^ 44 should severally and respectively be and become in "full force and effect l, and should be duly observed, 44 appKed, practised, and put in execution throughout " the respective parts of Great Britain, for raising, 44 levying, collecting, receiving, accounting for, and u securing of these doties, and for auditing the 44 accounts thereof, and otherwise relating thereto, 44 so for as the same shall not be superseded by and

DTCOKB TAX I*AW AND PRACTICE. 27

" shall be consistent with the express provisions of " this Act, as fully and effectually, to all intents and " purposes, a* if the same powers, authorities, methods, " rules, directions, penalties, clauses, matters, and " things were particularly repeated and re-enacted in " the body of this Act with reference to the said " duties?

The Commissioners of Inland Revenue for the time being, are Special Commissioners also by virtue of their office.

When the Income Tax was originally introduced by Mr. Pitt, the then existing machinery of the assessed taxes, with a few alterations, was adopted by him, and the same arrangements were, for the most part, adhered to by the late Sir Robert Peel, on the revival of the Income Tax in 1842.

Instead, however, of one class of Commissioners, as for the administration of the land and assessed taxes, there are three, viz. : —

The General Commissioners of Income Tax for each district;

The Additional Commissioners of Income Tax for each district; and

The Commissioners for Special Purposes.

Each of these bodies has its own separate and distinct duties clearly defined by the Act of Parliament.

The Commissioners for Oenefal Purposes.

The Commissioners for General Purposes are appointed by the Commissioners of Land T&x,at district meetings, held for that purpose. 'The mode of proceeding is as follows : —

Th6 Commissioners of the Land Tax Act, or the

c2 major part of them then present, choose, and set down in writing the names of such of their own body as are duly qualified, and who are fit and proper to act as Commissioners for the General Purposes of the Income Tax Acts.

The same limits are observed in regard to Districts as those settled under the Assessed Tax Acts.

The number of acting Commissioners for General Purposes at one time is not to exceed seven, nor to be less than three.

There is also a separate body, called " Commissioners to supply vacancies," with the same limitation as to numbers. In small divisions or districts, where there maybe any deficiency of resident persons duly qualified, the Commissioners of Land Tax are empowered to select the requisite number from any adjoining or neighbouring district. So long as there are seven duly qualified acting Commissioners appointed in this manner, no other person can interfere as a Commissioner, excepting in those places where Commissioners are chosen by corporate bodies, magistrates, &c, by virtue of the powers conferred upon them by certain clauses of the Income Tax Act.

The following are the exceptions referred to : —

City of London. — The Mayor and Aldermen of the city of London name two Commissioners for the city of London, and two to supply vacancies, out of eight persons, four of whom are to be Aldermen, returned to them by the Common Council.

The Bank of England names two Commissioners, and two to supply vacancies.

The Directors of the East India Company, the

UICOME TAX LAW AND PRACTICE. 29

Governor and Directors of the South Sea Company, the Governor and Directors of the Royal Exchange Assurance Company, the Governor and Directors of the London Assurance Company, the Directors of the East and West India Dock Company, the London Dock Company, and the St Katharine Dock Company, each name one Commissioner, and one to supply vacancies.

City of Norwich. — The Magistrates and Justices of the Peace may choose eight persons to be Commissioners and eight to supply vacancies, four of each to be from amongst the Magistrates themselves, and four from the inhabitants of the city.

The Magistrates and Justices of the Peace, acting for each of the following cities and towns, may choose eight Commissioners, and eight to supply vacancies, viz. : — Birmingham, Bristol, Exeter, Kingston-upon- Hull, King's Lynn, Leeds, Liverpool, Manchester, Xewcastle-upon-Tyne; Yarmouth (Great).

In any case where sufficient Commissioners are not chosen for a particular place or district, the Commissioners for the same county are empowered to act.

There are various other provisions with regard to the appointment of Commissioners in certain contingencies, into which it is unnecessary particularly to enter.

All Commissioners thus appointed must possess a qualification which varies in amount, according as they act for England, Wales, or Scotland.

To act as a Commissioner for any district or division of any county at large within England (the county of Monmouth and the dominion of Wales excepted) or of any of the ridings of the county of

80 IWCOMB TAX LAW ATO PRACTICE.

York, or of the county or divisions of Lincoln, or in or of any of the several cities and towns of London, Westminster, Bristol, Exeter, Kingston-upon-Hull, Newcastle-upon-Tyne, Norwich, Birmingham, Liverpool, Leeds, Manchester, King's Lynn, and Great Yarmouth, the requisite qualification is, that the person he seised or possessed of lands, tenements, or hereditaments in Great Britain of the value of two hundred pounds per annum or more, of his own estate, being freehold or copyhold, or leasehold for a term whereof not less than seven years are unexpired, over and above all ground rents, incumbrances, and reservations, payable out of the same respectively; or that such person shall be possessed of personal estate of the value of five thousand pounds ; or a personal estate, or an interest therein, producing an annual income of two hundred pounds ; or of lands, tenements, hereditaments, and personal estate, or an interest therein, being together of the annual value of two hundred pounds, estimating in every such case one hundred pounds personal estate as equivalent to four pounds per annum, and an interest from personal estate of four pounds per annum as equivalent to one hundred pounds personal estate ; or that he be the eldest son of some person who shall be seised or possessed of a like estate of thrice the value required as the qualification of a Commissioner, in right of his own estate, for such county at large, riding, division, or city.

To act as a Commissioner for any district or division of the county of Monmouth, or of any county in Wales, or for any city, borough, cinque port,

IHCOMS TAX I*AW AND. PRACTICE. 81

liberty, franchise, town, or place in England, or Wales (other than the cities and towns hereinbefore* mentioned), the requisite qualification is, that the person be seised or possessed of an estate of the like nature and of four-fiftlm of the value required for the estate of a Commissioner acting for a district or division of a county at large in England as aforesaid ; or that he be the eldest son of some person who shall be seised or possessed of some estate of thrice the value required as the qualification of a Commissioner, in right of his own estate, for the same county, city, borough, cinque port, liberty, franchise, town, or place.

To act as a Commissioner for any shire or stewartry in Scotland, the requisite qualification is, that the person be enfeoft in superiority or property, or possessed, as proprietor or life renter, of lands in Scotland to the extent of one hundred and fifty pounds Scots per annum valued rent ; or to be possessed of personal estate of the value of five thousand pounds ; or of personal estate, or an interest therein, producing an annual income of two hundred pounds sterling; or be enfeoft or possessed as aforesaid of lands and personal estate, or an interest therein, being together of the annual value of two hundred pounds sterling, estimating in every such case one hundred pounds personal estate as equivalent to four pounds per annum, and an interest from personal estate of four pounds per annum as equivalent to one hundred pounds personal estate; or that he be the eldest son of some person who shall be enfeoft or possessed of a like estate of twice the value required aa the

82 nrcom tax law and practice,

qualification of a Commissioner in right of his own estate, for such shire or stewartrv.

It is not necessary that any estate consisting of lands or tenements, as the qualification of a Commissioner, should be situate in the county, ridings division, shire, or stewartry for which he may act as Commissioner.

All Commissioners are entitled to a certificate under the hands of the Commissioners of Inland Revenue, to be enrolled by the Clerk of the Peace, and to continue in force so long as they officiate^ exempting them from all parochial offices and from serving on juries.

It is, perhaps, scarcely necessary to add, that the highly important and valuable services rendered to the Crown by the Commissioners for General Purposes, and by other local Commissioners — the discharge of which frequently entails upon them considerable inconvenience and personal sacrifice — are performed without any emolument whatever.

It will be seen that the Commissioners for General Purposes have, with some few exceptions, the general execution of the Income Tax laws in the district for which they act ; they also appoint the local officers necessary for that purpose, officiate as Judges of Appeal, and decide on the applications of persons who consider themselves aggrieved by the charges made upon them under Schedule D, and the other Schedules of the Act

There are no Commissioners for General Purposes in Ireland. (See chapter entitled u Income Tax in Ireland."

IXCOlfB TAX LAW AND PRACTICE. 33

Additional Commissioners*

The duties of the Additional Commissioners relate exclusively to Schedule D, under which are charged profits derived from the exercise of trades and professions. They are, in fact, the assessors of the duty under that Schedule, and have to decide upon many difficult and delicate questions in connexion with the consideration of the returns, and the assessments to be made upon those persons who omit or neglect to make returns at the proper time.

The Additional Commissioners are chosen by the Commissioners for General Purposes. The qualification is, that they be seised, or enfeoft, or possessed of an estate of the like nature, and of one-half the value of that required for the estate of a Commissioner for General Purposes in the same district.

The Commissioners for General Purposes may, however, if they think fit, nominate some members of their own body to act as Additional Commissioners. Those who are selected for this office, are precluded from hearing and determining ' any appeals -against assessments which they have previously made.

Clerk to the Commissioners.

The Commissioners for General Purposes have the power of appointing a Clerk to assist and advise with them generally in the transaction of the business, whose position is, in point of fact, almost analogous to that of Clerk to the Magistrates.

In addition to his attending all meetings of the

Commissioners for General Purposes, it devolves

c 3

34 nrcoMs tax law and practice.

upon him to attend the meetings of the Additional Commissioners.

The functions of the Clerk to the Commissioners are defined in various clauses of the Act of Parliament.

In regard to the assessments under Schedules A and B, after they have been duly examined by the Surveyor, they are forwarded by him to the Clerk to the Commissioners, who calculates and inserts the duties. He next proceeds to mak£ out notices of the charge upon each person, specifying the date, time, and place of appeal, to be delivered by the Assessors.

In regard to Schedule D, the Clerk to the Commissioners receives, at his office, any returns which may be forwarded to him in pursuance of the directions printed on the notice paper, which intimate that when filled up, it may be returned under cover and sealed, addressed to him. As soon as he receives the remaining notice papers returned to the Assessor, he proceeds to abstract them, entering, in the certificate of assessment, the names of all persons making returns, and the amount of profits returned by them, for each parish comprised in his district

After the returns and the certificates have been examined by the Surveyor, the Clerk communicates with the Additional Commissioners, to fix the necessary meetings for completing the assessments. On their being completed, he issues a notice of the amount of charge to each person, preparatory to the appeals. All reliefs or abatements directed to be made by the Commissioners for General Purposes in coses of appeal, are entered on the minutes kept by

INCOME TAX LAW A5D ?BACTIC£» 35

their Clerk, and the assessments are amended accordingly. When the assessments have been corrected, they are signed and allowed by the Commissioners, and a copy, or duplicate, as it is more generally termed, of each, is then prepared by the Clerk, and delivered to the Collector, with a warrant to collect, signed by the Commissioners. The Clerk to the Commissioners is required to preserve all returns under Schedule D, which are to be numbered and filed in the office tof the Commissioners and carefully kept, so long as the account of the duties for such district, or any part thereof, remain unpaid.

The Commissioners may, if they deem it necessary, appoint an Assistant Clerk ; but not more than one assistant can be appointed for any district without the approbation of the Commissioners of Inland Revenue, on a statement made to them by the Commissioners for General Purposes of the necessity for such appointment, in consideration of the extent or population of the district.

The following oath is taken by the Clerk or Assistant Clerk to the Commissioners before entering

upon the duties of his office : — "I , do swear,